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100 Questions (and Answers) About IFRS

Victoria University of Wellington - School of Accounting and Commercial Law

December 31, 2011

Abstract:

IFRS are cultural artefacts. They are spreading worldwide, often under the benign encouragement by entities such as the World Bank, and possibly through regulators suggesting the advantages of competitive innovation. But the spread of IFRS is not like the spread of muskets two centuries earlier. They do not similarly offer a prohibitive advantage to new adopters, but have to be gently harnessed to each local legal and professional habitus.

Once this happens, IFRS are not the same worldwide. Think of McDonalds hamburgers. When eating hamburgers in Shanghai or Siena, what I am offered is different: there is no Kiwiburger (with its typical beetroot) over there. IFRS, being cultural artefacts, are transformed to meet local ‘consumer demand’ (user needs) e.g. they may be used for a selective number of entities, or every entity (as happened in NZ from 2007: including a charity, sports club, the national Government, or a local city council).

Plus, a translator of IFRS into the local language is more than a shape-shifter or skin-changer (as Tolkien described Beorn): languages embody different ways of thinking. You would be very unwise to attempt to understand the differential reception or impact of IFRS with a largely discredited quantitative approach such as Hofstede’s cultural indices. A nation state is rarely one culture, and yet IFRS become culturally embedded.

More and more, quality research as reported in this Handbook reflects that the impact of IFRS in share markets worldwide depends on local enforcement and monitoring. Even in one small share market, IFRS is not a package deal. It is a number of standards applied to a greater or lesser degree to variety of transactions in a diversity of companies, monitored by numerous auditors. The auditor might use the English version of the IFRS or IAS, or they might use the local version. Roll your sleeves up and talk to a good number of local auditors and preparers. Understand their understandings. We need such research.

Here’s another metaphor: when you have an X-ray the utility or benefit it of it depends on the expertise of those interpreting the picture of what lies within. At first, the use of X-ray (Roentgen Rays) had some disastrous side effects (childhood leukaemia in babies X-rayed in utero) because the exact impact was not well understood. As with looking at an X-ray, financial reports based on IFRS have to be examined with an expert gaze to understand what lies beneath, or within the entity, as seen in its financial report. World-wide we are all learning what can be seen and what can’t. We cannot stop another financial crisis occurring with IFRS adoption. But we might reduce its disastrous impact with better educated and more expert users of IFRS (preparers and auditors).

I hope you are on the path towards developing such an expert eye, and that this Handbook will assist.

This Handbook has been revised extensively since its first publication in December 2009. It contains a hundred questions and answers about IFRS, prepared as a resource for my students at the Universities of Victoria (Wellington, New Zealand) and Exeter in the UK, so it is idiosyncratically written with a level of personal familiarity, as they know me well.

It might have been called ‘IFRS for Dummies’, excepting that was published last year, and the name is heavily copyrighted. This Handbook is replete with references to other authors, as it is intended as a resource so that when planning research projects, or writing essays and assignments, students may find an entry point into the extensive IFRS literature. For any one of these 100 questions, the Abstracts offer key search words to use with any Search Engine of choice. Most of the material is referenced from, www.ssrn.com.